US Dollar Index Outlook: DXY Tests Key Resistance Near 98.80 as Momentum Builds

Market Overview

The US Dollar Index (DXY) is starting 2026 on a firmer footing, edging higher despite heightened geopolitical noise following U.S. military intervention in Venezuela. The greenback’s resilience suggests that broader macro and policy dynamics are currently outweighing geopolitical risk in currency markets.

While the index has recovered part of its recent losses, it remains about 2.5% below its late-November peak, and bullish conviction will require a decisive break above the 98.80 resistance zone. For now, price action reflects cautious optimism rather than a full trend reversal.

Fundamental Drivers Supporting the Dollar

Recent U.S. economic data has helped stabilize dollar sentiment. Stronger Pending Home Sales and a further easing in weekly Jobless Claims last week reduced expectations that the Federal Reserve will need to accelerate interest-rate cuts in the near term.

As a result, market pricing for additional Fed easing has softened slightly, allowing the dollar to regain ground after weeks of sustained pressure. Attention now turns to a packed U.S. economic calendar, with Friday’s Nonfarm Payrolls report set to be the defining catalyst for near-term direction.

A resilient labor market could reinforce the view that the Fed can afford to remain patient, while any signs of renewed weakness would likely revive rate-cut expectations and cap dollar gains.

Geopolitical Backdrop and Market Sentiment

The dollar’s muted reaction to U.S. military developments in Venezuela highlights a broader theme: geopolitical risk alone is no longer sufficient to drive sustained USD weakness unless it materially alters growth, inflation, or policy expectations.

Instead, investors remain focused on interest-rate differentials, economic resilience, and the Fed’s reaction function—factors that continue to dominate currency pricing.

Technical Outlook: Upside Bias With Key Hurdles Ahead

From a technical perspective, the DXY has strengthened after breaking above the descending trend channel that had guided price action lower since the November 21 highs. This breakout has shifted the short-term bias to the upside.

On the four-hour chart, the index is trading near 98.70–98.75, with momentum indicators supporting further gains. The MACD remains above its signal line in positive territory, while the RSI near 66 signals strong bullish momentum without yet entering overbought conditions.

The immediate challenge lies at 98.80, a critical resistance zone where multiple technical levels converge, including the 38.2% Fibonacci retracement of the November–December decline, the December 19 high, and the former December 4 low.

A sustained break above this area would likely open the path toward 99.30, followed by the 99.55 region, which marks the early-December peak.

On the downside, initial support sits near 98.50, followed by 98.12 and the former descending trendline around 97.90, which should act as a stronger demand zone if the rally stalls.

What Traders Are Watching

• Friday’s Nonfarm Payrolls report, including wage growth and labor participation
• Any shift in Fed communication tied to labor-market resilience
• Whether DXY can achieve a daily close above 98.80, confirming bullish continuation

Summary

The US Dollar Index is showing early signs of stabilization as it challenges resistance near 98.80, supported by firm U.S. data and a moderation in Fed rate-cut expectations. While geopolitical developments have added background noise, they have not derailed the dollar’s recovery.

A decisive break above resistance would signal a stronger bullish phase toward the 99.30–99.55 region, while failure to clear this zone may keep the DXY range-bound ahead of crucial labor-market data. As the week unfolds, Nonfarm Payrolls will be pivotal in determining whether this recovery gains lasting traction.

FAQ

1. Why is the US Dollar Index rising at the start of 2026?
The dollar is being supported by stronger U.S. economic data and easing expectations for additional Federal Reserve rate cuts.

2. Why is the 98.80 level important for DXY?
It is a major resistance zone where several technical levels converge, making it a key area for confirming bullish momentum.

3. How important is the Nonfarm Payrolls report for the dollar?
It is one of the most influential indicators for Fed policy expectations and can significantly impact USD direction.

4. Has geopolitical risk affected the dollar outlook?
So far, geopolitical developments have had limited impact, with markets prioritizing interest-rate and economic fundamentals.

5. What could invalidate the bullish outlook?
A failure to break above 98.80 combined with weak U.S. labor data could renew downside pressure toward the 98.00 area.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or trading advice. Market conditions can change rapidly, and readers should conduct their own research or consult a qualified financial professional before making investment decisions.